Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
-----------------------------
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from _______to _______
Commission File No. 0-1424
ADC Telecommunications, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0743912
- ---------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 West 78th Street
Minneapolis, Minnesota 55435
- ---------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 938-8080
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value
Common Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
/X/ Yes / / No
The aggregate market value of voting stock held by nonaffiliates of the
registrant, as of December 15, 1994, was approximately $1,071,516,000 (based on
the last sale price of such stock as reported by the NASDAQ National Market
System).
The number of shares outstanding of the registrant's common stock, $.20 par
value, as of December 15, 1995, was 27,901,035.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G(3), the responses to Items 10, 11, 12 and
13 of Part III of this report are incorporated herein by reference to the
information contained in the Company's definitive proxy statement for its 1995
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission on or before February 28, 1995.
PART I
ITEM 1. BUSINESS
ADC Telecommunications, Inc. designs, manufactures and markets a broad
range of transmission and networking systems and physical connectivity products
for broadband telecommunications networks utilizing copper, coax, fiber optic
and wireless transmission methods. The Company markets its products worldwide
through its own direct sales force, as well as through distributors and original
equipment manufacturers (OEMs). The Company's products are designed for use in
the public telecommunications networks maintained by telephone operating
companies, interexchange carriers, other telecommunications common carriers and
broadcast and cable TV network providers, and for use in private
telecommunications networks maintained by large businesses, government agencies,
and educational and other non-profit institutions.
The Company was incorporated in 1953 as a Minnesota corporation under the
name Magnetic Controls Company. In 1961, Magnetic Controls Company was merged
with ADC Incorporated, a Minnesota corporation incorporated in 1935. In 1984,
the Company sold substantially all of the assets of its magnetics operations. In
1985, Magnetic Controls Company changed its corporate name to ADC
Telecommunications, Inc. in order to better reflect the Company's commitment to
the telecommunications market and to identify the Company more closely with its
ADC trademark.
In July 1989, ADC acquired Kentrox Industries, Inc. (Kentrox), located in
Portland, Oregon. Kentrox designs, manufactures and markets public network
access equipment for private telecommunications networks and wireless
transmission products for public network providers. In July 1990, ADC acquired
American Lightwave Systems, Inc. (ALS). ALS, located in Meriden, Connecticut,
designs, manufactures and markets fiber optic video transmission equipment for
the telephone, cable TV, broadcast and government markets. In May 1991, ADC
acquired Fibermux Corporation (Fibermux), located in Chatsworth, California.
Fibermux designs, manufactures, markets and installs enterprise-wide
communication systems for the interconnection and transport
of Local Area Network (LAN) and other voice, data and video traffic, primarily
in private telecommunications networks. As used in this report, the terms
"Company" and "ADC" refer to ADC Telecommunications, Inc. and its wholly-owned
subsidiaries unless the context requires otherwise, and 1994, 1993 and 1992
refer to the Company's fiscal years ended October 31, 1994, 1993 and 1992,
respectively.
THE TELECOMMUNICATIONS MARKET
The largest market for the Company's broad range of telecommunications
products consists of companies providing service in the public
telecommunications networks and the OEMs which supply such companies. The
Company's transmission and physical connectivity products for the public network
market are primarily located in central transmission facilities (i.e., telephone
company network central offices, cable TV company network supertrunks and
headend offices, and wireless network base stations, all of which contain the
equipment used in switching and transmitting incoming and outgoing circuits).
Increasingly, portions of the Company's public network transmission systems are
located in the public network outside plant facilities (outside the central
transmission buildings) and on customers' premises.
Another market for the Company's products consists of rapidly growing
private voice, data and video telecommunications networks maintained by
businesses, government agencies, and educational and other non-profit
institutions. The Company's customers in this market primarily include large
businesses and government agencies with their own communications networks and
the OEMs and Value Added Resellers (VARs) which supply such networks. The
Company's products for private networks are located on the private network
customers' premises and consist of enterprise-wide communication systems and
public network access equipment.
The market for the Company's products has grown in large part due to the
effects of three ongoing developments in the telecommunications industry. First,
rapid technological change has created a demand for new products employing
advanced technologies. Second, the shift to data and video network traffic has
resulted in increasing demand for broadband, multimedia networking capabilities
in both public and private networks. Third, the policy of deregulation
2
being followed by the Federal Communications Commission and similar regulatory
agencies throughout the world has increased opportunities for independent
companies to supply products and services within public telephone system markets
and within private voice, data and video communications markets.
The Company believes that for the foreseeable future technological change
will be the most important development in the continuing evolution of the
telecommunications market. One important technological change in transmission
technology has been the introduction of fiber optic cable and electronics. In a
fiber optic system, lasers transmit voice, data and video traffic in the form of
analog or digital coded light pulses through a glass fiber approximately the
size of a human hair. Fiber optic systems are increasingly replacing existing
copper based transmission systems because of their capacity to carry large
volumes of information at high speeds, their insensitivity to electromagnetic
interference and the high transmission quality made possible by the physical
properties of light .
A second important technological change in the telecommunications
marketplace is the use of integrated circuits and miniaturization, which has
facilitated the transfer of certain telecommunications functions from central
switching and transmission locations to locations closer to the business or
residential end-user. In addition, because of the increased use of integrated
circuits in both public and private telecommunications, networks have become
significantly more complex. Increasingly, high speed switching, network
performance monitoring, network management, information compression and data
translation functions are being performed by network equipment.
A third important technological change over the past 10 to 15 years has
been the accelerating replacement of analog technology with digital technology
in transmission networks. In analog technology, information is converted to a
voltage or current wave form for processing or transmission. In digital
technology, information is converted to digital bits and then processed or
transmitted using computer based components.
The Company believes that, over the long term, a significant portion of new
equipment purchased by public network providers and private network customers
will utilize fiber optic transmission technology. The majority of such
equipment will employ digital technology and will
3
require increasingly sophisticated (i.e., software intensive) switching and
network management systems.
PRODUCTS
The Company categorizes its products into the following groups:
TRANSMISSION PRODUCTS: Transmission products provide electronic and
optical signal generation over a telecommunications circuit. Certain of the
transmission products also provide access in order to monitor, test and reroute
circuits within telecommunications transmission systems. ADC's transmission
products are designed for use in copper-based, coax-based, fiber optic or
wireless transmission networks.
NETWORKING PRODUCTS: Networking products provide interconnection and
transportation of voice, data and video signals within a single customer
building or campus as well as network access to the public network. The
Company's networking products are designed for use in copper-based and fiber
optic networks.
BROADBAND CONNECTIVITY PRODUCTS: Broadband connectivity products provide
the physical contact points for connecting different telecommunications system
components and gaining access to telecommunications system circuits for the
purpose of installing, testing, monitoring or reconfiguring such circuits. A
majority of the Company's broadband connectivity products are designed for use
in copper based transmission networks, with the remainder designed for use in
coax, fiber optic and wireless transmission networks.
Historically, most of the Company's products have been used in connection
with copper-based telecommunications networks, reflecting the historical
installed base of equipment utilizing copper cable in domestic and international
telecommunications networks. As a direct result of this large installed base,
the Company expects that, for the foreseeable future, a substantial portion of
its existing and new broadband connectivity products will be sold to maintain
and improve the functionality of copper-based telecommunications systems.
Although the Company expects to continue to allocate considerable resources to
improving existing products and developing new products for these systems, it
will also devote significant resources to the development of coax,
4
fiber optic and wireless products because the Company believes that such
products represent an increasing source of future growth of broadband
connectivity product revenues.
The percentages of total consolidated net sales attributable to each of the
Company's product groups and to fiber optic products in total for the past three
fiscal years are set forth in Part II, Item 7 hereof.
TRANSMISSION PRODUCTS
DIGITAL REPEATERS: The Company's copper based digital repeaters regenerate
digital signals that have degraded because of transmission over long distances,
primarily in central office applications. Digital repeaters are sold primarily
to telephone operating companies and other telecommunications common carriers.
TEST AND MONITORING SYSTEMS: The Company manufactures three remote digital
test and performance monitoring products. The T-Sentry[REGISTERED TRADEMARK]
system and SENTRY 45-TM- system provide non-intrusive remote network performance
monitoring and alarm surveillance on DS1 and DS3 signals. The Company's
NetStar[REGISTERED TRADEMARK] system, a remotely operable, intrusive T1 test and
monitoring system, is designed for high capacity T1 telephone central office
testing and private network facility management.
The Company has begun marketing its open systems-based FiberWatch-TM-
remote fiber test and surveillance system. The FiberWatch system provides a
database of installed fibers, performs scheduled and on-demand testing, and
provides mapping and graphing capability for location of faults in networks.
ADC also manufactures and sells the Logix operational support system, a
software system which enables the user to collect and report performance
monitoring data from a variety of ADC and other network and performance
monitoring equipment. The Logix system has an open system architecture that
supports various standards. It provides for the centralized management of ADC
test and monitoring systems and transport equipment, and is designed to
interface with higher level operational support systems used by public network
providers.
5
The Company's test and monitoring systems are sold to telephone operating
companies, other telecommunications common carriers, OEMs, distributors, and
users of private voice and data communication networks.
FIBER VIDEO DELIVERY EQUIPMENT: Through its ALS subsidiary, the Company
manufacturers fiber optic based video transmission systems. The LiteAMp-TM-,
FN6000-TM-, LC6000-TM-, LX6000-TM- and SM6000-TM- systems transmit a variety of
analog signals over fiber in cable TV company applications, broadcast
applications and interactive systems for distance learning and campus
interconnects. The DV6000-TM- system transmits a variety of signal types using
a high speed, uncompressed digital format (2.4 billion bits per second) over
fiber in the supertrunking portions of broadcast and interactive video networks
operated by telephone companies, cable TV companies, other public network
providers and private network applications. The PixlNet-TM- H.320 PX64
compressed digital video system is currently being tested in customer field
trials for video teleconferencing and distance learning applications.
The Company's fiber video delivery systems are sold directly to cable TV
companies, telephone operating companies, other telecommunications common
carriers and users of private data and video communication networks. ALS also
provides fiber optic subsystems for the Homeworx-TM- product described below.
SONEPLEX[REGISTERED TRADEMARK] SERVICE DELIVERY PRODUCT PLATFORM: The
Company's Soneplex platform is an integrated loop transmission system that
enables public network providers to deliver T1, T3 and other high rate services
from their networks to customer premises over copper or fiber facilities. The
Soneplex platform enables end user customers to transmit voice, data and video
traffic across their private network and/or to access various switched and
dedicated services provided by public networks.
The Company's Soneplex family of platforms and modules employ electrical to
optical conversion for transport over fiber facilities and High bit-rate Digital
Subscriber Line (HDSL) transmission technology for transport over copper
facilities. Soneplex products also integrate circuit performance monitoring and
test access capabilities to enable public network carriers to provide reliable
service at a low operational cost. The Company is continuing to develop new
modules and capabilities for the Soneplex platform, including Synchronous
Optical NETwork
6
(SONET) internetworking. The 1994 additions to the Soneplex platform included
extended range copper transport as well as a channelized network access
device/bandwidth manager located on the customer premises, that was obtained
through a technology partnership arrangement.
The Company's Soneplex product family of equipment can be located in public
network central transmission buildings, outside plant facilities or on
customers' premises and are sold to telephone operating companies, cable TV
companies, other telecommunications common carriers and users of private voice
and data communications networks.
HOMEWORX-TM- ACCESS TRANSPORT PLATFORM: The Company also has a customer
loop transmission system under development for the small business and
residential customer called the Homeworx access transport platform. During 1994
the Company commercially released two versions of this system. Additional
customer field trials and releases of the Homeworx system are planned for 1995
and 1996. Homeworx access transport systems are sold to telephone operating
companies, cable TV companies and other telecommunications common carriers.
ATM SWITCH: Under an exclusive marketing arrangement, the Company markets
an Asynchronous Transfer Mode (ATM) switching system that supports advanced
high-speed data and video applications primarily in the public
telecommunications networks. The Company is currently performing customer field
trials for this product and intends to begin shipping the product to customers
in 1995. The ATM switching system will primarily be sold to telephone operating
companies, interexchange carriers and other telecommunications common carriers.
CITYCELL-TM- SYSTEM: The Kentrox CityCell Digital Microcell System is a
fiber-fed, radio frequency digital transmission microcell that adds and extends
cellular communication coverage, primarily in large urban areas. During 1994,
several major product line enhancements and additions, including a 25 watt
version of the CityCell product, CityRad-TM- (which is an air-to-air re-radiator
with traffic level monitoring), remote alarm and control and enhanced network
management tools were released. Effective November 1, 1994, the Kentrox
wireless systems products have been collectively named the CityWide-TM- product
family. These products are sold primarily to public cellular communications
network providers and users of private voice and data communications networks.
7
NETWORKING PRODUCTS
PUBLIC NETWORK ACCESS EQUIPMENT: Through its Kentrox subsidiary, the
Company manufactures public network access equipment. These products, known
as the T-SERV[REGISTERED TRADEMARK] CSU (Channel Service Unit),
T-SMART[REGISTERED TRADEMARK] Intelligent CSU, the DataSMART[REGISTERED
TRADEMARK] DSU(Data Service Unit)/CSU, the D-Serv-TM- DSU/CSU, the
DataSMART E1 SMDSU[REGISTERED TRADEMARK] (Switched Multi-megabit Data Service)
DSU, the DataSMART T3/E3 SMDSU[REGISTERED TRADEMARK] DSU and the DataSMART T3/E3
IDSU-TM- Intelligent DSU/CSU are used to interconnect digitally the common
carrier public network and the customer premises network. This equipment
monitors circuits and provides system protection and other network management
functions. The T-SMART product also enables the customer to test the
performance of its voice network. The D-Serv and DataSMART product lines allow
connection of voice, data and video circuits.
During 1994, Kentrox developed, introduced and tested in customer field
trials its DataSMART T1/E1 ADSU-TM- products and DataSMART T3 ADSU-TM-
products, ATM DSUs which operate at both DS1 and DS3 transmission speeds. The
Kentrox AAC-1-TM- T1/E1 ATM access concentrator that transports voice, data and
video signals was also introduced and underwent customer trials during 1994.
Its most recent addition to the Company's ATM product line, the AAC-3-TM- T3/E3
ATM access concentrator, is expected to enter customer field trials and be
commercially released in 1995.
The Company's public network access equipment is sold through telephone
operating companies, interexchange carriers, other telecommunications common
carriers, OEMs and distributors, or directly to users of private voice and data
communication networks.
INTERNETWORKING PRODUCTS: Through its Fibermux subsidiary, the Company
manufactures internetworking products. The Crossbow-TM- multi-LAN hub family of
products interconnects workstations, personal computers and terminals, utilizing
many different LAN protocols and types of cables. During 1994, Fibermux
commercially released its SnapLAN-TM- hub system, a "snappable" wiring hub
system for work groups. The LightWatch[REGISTERED TRADEMARK] network management
system controls networks based on Crossbow hubs, from a single location using
the Simple Network Management Protocol (SNMP). The Magnum 100[REGISTERED
TRADEMARK] family of products transports multiple voice, data and video signals
simultaneously over a fiber optic backbone operating at 100-megabit
8
(one hundred million bits per second) speed. The Magnum 100 backbones link
LANs, mainframes, minicomputers, personal computers, telephone systems and video
equipment with diverse protocols using time-division multiplexing technology,
within the enterprise network or over the public common carrier network.
LightWatch network management software also controls Magnum 100 networks. In
addition, Fibermux sells LAN backbone products using other technologies such as
fiber distributed data interface (FDDI) and internetworking components such as
routers, some of which have been acquired through licensing and product
development arrangements.
In 1994, Fibermux introduced its ATMosphere-TM- ATM backbone wiring hub.
The ATMosphere product, in its first phase, provides a high speed, ATM-based
backbone between Crossbow hubs and virtual networking management for users
attached to Crossbow hubs.
Fibermux sells internetworking products principally to users of private
data communication networks, either directly or through telephone operating
companies and other telecommunications common carriers.
PATCH/SWITCH SYSTEM AND PATCHMATE-TM- MODULE: The Company's Patch/Switch
system is a data network management product that provides access to, monitors,
tests and reconfigures digital data circuits and permits local or remote
switching to alternate circuits or backup equipment. This system is fully
modular, permitting the user to select and combine the particular functions
desired in a system. The PatchMate Module is a manually operated
electromechanical device used to gain access in order to monitor, test, and
reconfigure digital data circuits. The Patch/Switch System and PatchMate Module
are sold principally to users of private data communication networks.
BROADBAND CONNECTIVITY PRODUCTS
JACKS, PLUGS AND PATCH CORDS: Jacks and plugs are the basic components
used to gain access to copper telecommunications circuits for testing and
maintenance. A jack is a connecting device to which the wires of a circuit are
attached and through which access to that circuit is obtained by the insertion
of the plug. This access permits the circuit to be monitored, tested or re-
routed (patched). Patch cords are wires or cables with a plug on each end. ADC
offers a complete
9
line of jacks and plugs in the longframe and smaller bantam formats. The bantam
products are approximately half the size of the longframe products. The Company
also manufactures a line of jacks in both of these formats which are designed to
be mounted on printed circuit boards wherever access points are required, as
well as a line of coaxial jacks and plugs used for gaining access to high
frequency circuits.
ADC incorporates its jacks, plugs and patch cords into its own products and
also sells them in component form primarily to OEMs, whose products are used by
telephone operating companies and other companies providing communication
services. These components are generally manufactured to industry-recognized
compatibility and reliability standards as off-the-shelf items.
JACKFIELDS AND PATCH BAYS: A jackfield is a module containing an assembly
of jacks wired to terminal blocks or connectors and used by telecommunications
companies to gain access to copper communication circuits for testing or
patching the circuits. ADC manufactures jackfields in both longframe and bantam
formats, including prewired and connectorized models. When testing a large
number of circuits, series of jackfields are combined in specialized rack
assemblies, which often may include test modules. These assemblies are called
patch bays. ADC manufactures a range of jackfields and patch bays in various
configurations. The Company's analog jackfields and analog and digital patch
bays are sold primarily to OEMs, telephone operating companies and other
telecommunications common carriers. The Company also manufactures and sells
specialized jackfields for use in audio and video transmission networks in the
broadcast industry.
DSX PRODUCTS: ADC manufactures digital signaling cross-connect (DSX)
modules and bays which are jackfields and patch bays designed to gain access to
and cross-connect digital copper circuits for both voice and data transmission.
Since introduction of DSX products in 1977, the Company has continued to expand
and refine its DSX product offerings, and has become a leading manufacturer of
products for the mechanical termination and interconnection of digital circuits
used in voice and data transmission. During 1994, ADC added DS-3 Digital
Distribution Point (DDP) products to its line of DSX products. DDP products are
mechanical alternatives to hard-wiring equipment used for cable management and
circuit access in software based digital cross-connect systems. The Company's
DSX products are sold primarily to telephone operating companies and other
telecommunications common carriers.
10
TERMINAL BLOCKS AND FRAME PRODUCTS: Terminal blocks are molded plastic
blocks with contact points used to facilitate multiple wire interconnections.
ADC manufactures a wide variety of terminal blocks. The Company's cross-connect
frames are terminal block assemblies used to connect the external wiring of a
telecommunications network to the internal wiring of a telephone operating
company central office or to interconnect various pieces of equipment within a
telephone company. ADC sells its terminal blocks and cross-connect frames
primarily to OEMs and telephone operating companies.
FIBER OPTIC PATCH CORDS: Fiber optic patch cords are functionally similar
to copper patch cords and are the basic components used to gain access to fiber
telecommunications circuits for testing, maintenance, cross-connection and
configuration purposes. ADC manufactures its own FC, SC and ST[REGISTERED
TRADEMARK]* connectors for use in the fiber optic patch cords. The Company's
LightTracer-TM- fiber optic patch cord provides immediate identification of
fiber optic connections. The Company incorporates its fiber optic patch cords
into its own products and sells them in component form principally to OEMs,
whose products are used by telephone operating companies, cable TV companies,
other telecommunications common carriers and users of private voice and data
communications networks.
FIBER DISTRIBUTION PANELS AND FRAMES: Fiber distribution panels and frames
are functionally similar to copper jackfields and frames with the added feature
of additional bend protection, and provide interconnection points between fiber
optic cables entering a building and fiber optic cables connected to fiber optic
equipment within the building. The Company sells fiber distribution products
primarily to telephone operating companies, cable TV companies, other
telecommunications common carriers and users of private voice and data
communications networks.
FIBERGUIDE[REGISTERED TRADEMARK] SYSTEMS: The FiberGuide system is a
modular routing system which provides a segregated, protected method of storing
and routing fiber patch cords and cables within buildings. ADC sells its
FiberGuide systems primarily to telephone operating companies, cable TV
companies, other telecommunications common carriers and users of private voice
and data communications networks.
- ----------------------------------------
* ST is a registered trademark of American Telephone & Telegraph Co.
11
OUTSIDE PLANT PRODUCTS: Outside Plant (OSP) products consist of cabinets
and other enclosures configured to locate and integrate the functions of passive
fiber optic equipment and electronic transmission systems outside the telephone
central office/cable TV headend switching and transmission facilities as well as
the equipment located therein. The Company's OSP products provide flexible
network management, remote transmission capability and environmental protection
for various telecommunications topologies and architectures. OSP products
designed for broadband residential loop applications also provide power supply
and coaxial splicing and tapping functions. ADC sells OSP products to telephone
operating companies, cable TV companies and other telecommunications common
carriers.
ENGINEER, FURNISH AND INSTALL SERVICES: Engineer, furnish and install
(EF&I) services consist of layout and installation of new telecommunications
networks, modification of existing networks or the addition of equipment to
existing networks. The Company sells its EF&I services primarily to telephone
operating companies, other common carriers and users of private
telecommunications networks.
PRODUCT DEVELOPMENT
The Company is committed to an ongoing program of new product development
which combines internal development efforts with acquisition, joint venture,
licensing or marketing arrangements relating to new products and technologies
from sources outside the Company. Development and product engineering expenses
for fiscal 1994, 1993 and 1992 were $48,974,000, $40,988,000 and $36,063,000,
respectively (approximately 10.9%, 11.2% and 11.4%, respectively, of
consolidated net sales).
The Company's product development program emphasizes the innovative
application of existing technology in the design of new products rather than the
research and development of new technology. The Company's product development
group works closely with marketing personnel in an effort to determine emerging
user needs in the telecommunications market and continually reviews and
evaluates technological changes affecting this market.
12
The Company is currently conducting development efforts with respect to
technologies and products in each of its three product groups. Among other
projects, the Company's development activities are directed at the integration
of fiber optic technology into additional products, the continuing development
of wireless microcell products and the incorporation of ATM technology into
voice, data and video products for both public and private telecommunications
networks. The Company is also developing copper and fiber optic products for
applications in the local loop.
MARKETING AND DISTRIBUTION
ADC sells its products to customers in three primary markets: (1) the
United States public telecommunications network market, (2) the private and
governmental voice, data and video network market in the United States, and (3)
the international public and private network market.
Major providers of networks utilizing copper, coax, fiber optic and
wireless transmission methods in the public telecommunications market in the
United States include the Bell Operating Companies, other telephone companies
(such as GTE Corporation, Sprint/United Telephone Co. and Southern New England
Telecommunications Corporation), long-distance telephone companies (such as
American Telephone & Telegraph Co., MCI Telecommunications Corp., Sprint
Corporation and Wiltel, Inc.), cable TV companies (such as Cox Enterprises,
Inc., Continental Cablevision and Tele-Communications, Inc.), other emerging
telecommunication common carriers (such as MFS Communications Company and
Teleport Communications Group, Inc.), and major OEMs which service these same
customers (such as AT&T Technologies, Inc., Northern Telecom, Inc., Alcatel
Alsthom Compagnie Generale D'Electricite, NEC America, Inc., Fujitsu Limited and
Tellabs, Inc.). The Company sells its products to most of the major providers
and OEMs.
The private network market includes predominantly large businesses and
state and federal government agencies which own and operate their own voice and
data networks for internal use. Major OEMs in this market include International
Business Machines Corporation (IBM), AT&T Paradyne Corporation, Digital
Equipment Corporation, Northern Telecom, Inc., Motorola Codex and The Racal
Corporation.
13
The Company's products are sold in the United States by approximately 119
field sales representatives located in 26 sales offices throughout the country,
and by several dealer organizations and distributors. The Company also has a
customer service group, which supports field sales personnel and is responsible
for application engineering, customer training, entering orders and supplying
delivery status information, and a field service engineering group, which
provides on-site service to customers.
The Company also markets its products outside the U.S. primarily to
telephone operating companies and cable TV companies in the public
telecommunications networks of Canada, Mexico, South America, Europe, Australia,
New Zealand, Russia and the Asian region. The Company sells its products to
foreign customers through 23 Company-employed field salespersons, eight foreign
independent sales representatives and 77 foreign distributors, as well as
through U.S. public and private network providers who also distribute outside
the U.S. On October 31, 1994, the Company's foreign distribution network was
selling products in 60 nations throughout the world. To date, the principal
foreign market for the Company's products has been Canada. The Company has
wholly-owned subsidiaries in Canada, Mexico, Venezuela, the United Kingdom,
Belgium, Australia and Singapore. The Company's foreign sales offices are
located in Montreal, Ottawa, Toronto, Vancouver, Mexico City, Caracas, London,
Brussels, Sydney and Singapore.
Consolidated export sales to unaffiliated customers for fiscal years 1994,
1993 and 1992 were $67,113,000, $58,919,000, and $49,347,000, respectively
(approximately 15.0%, 16.1% and 15.6%, respectively, of consolidated net sales).
The Company warrants most of its products against defects in materials and
workmanship under normal use and service for periods of up to 15 years. To
date, the Company's warranty experience has been favorable, with a low rate of
product return.
COMPETITION
Competition in the telecommunications products market is intense. The
Company manufactures, markets and sells products similar to those manufactured
by numerous other
14
companies, some of which, such as AT&T Technologies, Inc. and Switchcraft, Inc.,
a subsidiary of Raytheon Company, have greater resources than those available to
the Company. The Company also faces increasing competition from a number of
other smaller competitors. The Company believes its success in competing with
other manufacturers of telecommunications products depends primarily on its
engineering, manufacturing and marketing skills, the price, quality and
reliability of its products, and its delivery and service capabilities.
The Company's Fibermux subsidiary competes with a number of other
companies, two of which are dominant in its intelligent wiring hub markets, and
faces both strong price competition and pressure from alternative distribution
strategies utilized by these other companies. The Company's Kentrox and ALS
subsidiaries compete with a number of companies, none of which is dominant.
The Company believes that technological change, the shift in network
traffic to data and video and continuing industry deregulation will continue to
cause rapid evolution in the competitive environment of the telecommunications
market, the full scope and nature of which is impossible to predict at this
time. The Company believes the most significant competitive effect of
continuing industry deregulation has been, and will continue for the immediate
future to be, the creation of new opportunities for suppliers of
telecommunications products like the Company. The Company expects, however,
that such opportunities will attract increased competition from others as well.
In addition, the Company expects that AT&T Technologies, Inc. will continue to
be a major supplier to the Bell Operating Companies, and is competing more
extensively outside the Bell system. The Company also believes that the rapid
technological changes which characterize the telecommunications industry will
continue to make the markets in which the Company competes attractive to new
entrants.
MANUFACTURING AND SUPPLIES
The manufacturing process for the Company's electronic products consists
primarily of assembly and test of electronic systems built from fabricated
parts, printed circuit boards and electronic components. The manufacturing
process for the Company's electromechanical products
15
consists primarily of fabrication of jacks, plugs, and other basic components
from raw materials, assembly of components and testing. The Company's sheet
metal, plastic molding, stamping and machining capabilities permit the Company
to configure components to customer demand.
The Company purchases raw materials and component parts, consisting
primarily of copper wire, optical fiber, steel, brass, nickel-steel alloys,
gold, plastics, printed circuit boards, solid state components, discrete
electronic components and similar items, from several suppliers. Although a
number of components used by the Company are single-sourced, the Company has
experienced no significant difficulties to date in obtaining adequate quantities
of these raw materials and component parts. The Company believes that
alternative sources of supply exist, or can be developed without causing
significant delays, for all of its raw materials and component parts.
PROPRIETARY RIGHTS
The Company owns a number of United States and foreign patents relating to
its products. These patents, in the aggregate, constitute a valuable asset of
the Company. The Company, however, believes that its business is not dependent
upon any single patent or any group of related patents.
The Company has registered the initials ADC alone and in conjunction with
specific designs as trademarks in the United States and various foreign
countries.
EMPLOYEES
As of October 31, 1994, there were 2,644 persons employed by the Company.
The Company considers relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's corporate headquarters are currently located in two leased
buildings in Minnetonka, Minnesota, comprising 144,700 square feet. A 57,000
square foot facility, also
16
leased in Minnetonka, is occupied by the Company's Minnesota fiber optic
operations. The Company also leases a 119,000 square foot facility in
Minnetonka, Minnesota, in which the engineering, product management,
manufacturing and manufacturing support operations for the Company's
transmission products are located. The Company also owns two buildings
comprising 132,800 square feet in Bloomington, Minnesota, which house
manufacturing and manufacturing support operations.
The Company owns a 76,000 square foot facility and a 20,000 square foot
facility in LeSueur, Minnesota, which are used for electromechanical assembly
and warehouse space. The Company leases additional warehouse space on a short
term basis from time to time to meet its needs. The Company owns an 11,700
square foot facility in Bloomington, Minnesota, which is leased to an
unaffiliated company. In addition, the Company owns approximately 38 acres of
undeveloped land in Eden Prairie, Minnesota.
Approximately 15,000 square feet of space in Richardson, Texas is leased by
the Company for an engineering development center. The Company also leases
sales office facilities in the United States, Canada, Mexico, Venezuela, the
United Kingdom, Belgium, Australia and Singapore.
The Company's Kentrox subsidiary owns a 105,000 square foot facility in
Portland, Oregon, which serves as its office and manufacturing facility and
leases approximately 4,000 square feet of space in Waseca, Minnesota, which
serves as a research and development center. The Company's ALS subsidiary
leases approximately 79,000 square feet of space in Meriden, Connecticut as its
office and manufacturing facility. The Company's Fibermux subsidiary leases
approximately 97,000 square feet of space in Chatsworth, California as its
office and manufacturing facility.
Leases for the Company's headquarters, sales offices and manufacturing
facilities expire at different times through 2000 and are generally renewable on
a fixed term or a month-to-month basis. The Company believes that the
facilities used in its operations are very well maintained and in excellent
condition.
For information regarding encumbrances on the Company's properties, see
Note 3 to the Consolidated Financial Statements included in Part II, Item 8, of
this report.
17
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Office Officer Since Age
- ---- ------ ------------- ---
William J. Cadogan Chairman of the Board, 1987 46
President, Chief Executive
Officer and Chief Operating
Officer
Lynn J. Davis Senior Vice President, 1984 47
General Manager, Broadband
Connectivity Division
Frederick D. Lawrence Senior Vice President, 1994 46
Transmission Group
Lawrence D. Asten Vice President Sales, 1992 47
Customer Services and
Marketing
Bruce W. Brown Vice President, and 1993 44
President of Fibermux
Richard S. Gilbert Vice President, and 1994 42
President of Kentrox
William L. Martin III Vice President, General 1994 47
Manager, Network Services
Division
Jack Reily Vice President, General 1994 44
Manager, Access Platforms
John A. Schofield Vice President International 1994 46
Sales
Robert E. Switz Vice President, Chief Financial 1994 48
Officer
Executive officers of the Company are elected by the Board of Directors.
The Company's executive officers were last elected to their positions on
February 22, 1994, except Mr. Lawrence was elected to his position on March 14,
Mr. Martin was elected to his position September 27, and Mssrs. Gilbert and
Schofield were elected to their positions December 12. Messrs. Cadogan, Davis
and Reily have served in various capacities with the Company for more than five
years. Biographical information regarding the other named officers follows.
Mr. Lawrence joined the Company in March 1994. Prior to such time he was
employed by Sprint Corporation for twelve years, most recently as President and
Chief Executive Officer of United Telephone of Florida. From 1989 to 1992 he
was Senior Vice President Operations of US Sprint.
Mr. Asten joined the Company in February 1992. Prior to such time he was
employed by Telco Systems, Inc., a manufacturer of fiber optic transmission
products and customer premises network access equipment, where he served as Vice
President, Worldwide Sales, from 1987.
19
Mr. Brown joined the Company in July 1993. Prior to such time he was
employed by Ungermann-Bass, a manufacturer of enterprise-wide networking
solutions, as Executive Vice President, Customer Operations. From 1988 to 1990
Mr. Brown was Senior Vice President, Marketing, Sales and Service for McData
Corporation, a Colorado-based networking company.
Mr. Gilbert joined the Company in June 1992. Prior to November 1994 he was
Vice President and General Manager, Access Group for six months and Vice
President, Engineering for two years. From 1991 to 1992 he was Vice President
of Research and Development at Make Systems, Inc., a manufacturer of a network
design and analysis tool. From 1990 to 1991 Mr. Gilbert was Assistant Vice
President, Software Engineering for Vitalink Communications Corporation, a
manufacturer of data communications equipment. Prior to that he was employed
for 14 years by IBM Corporation, most recently as Senior Manager, Workstation
Development at the Santa Teresa Laboratory.
Mr. Martin joined the Company in September 1994. Prior to such time he was
employed by Ascom Timeplex, a manufacturer of data and telecommunications
equipment, most recently as Vice President, Technical Marketing. His previous
positions included Vice President China Business Development and Vice President
U.S. Sales. From 1987 to 1990 he was the Chief Executive Officer of Broadband
Telesystems, at which time that company was acquired by Ascom Timeplex.
Mr. Schofield joined the Company in October 1992. Prior to October 1994 he
was Managing Director for Asia Pacific/Latin America. He was Senior Vice
President, Sales and Marketing at Telex Communications, Inc., a manufacturer and
marketer of electronic audio communication devices, from 1990 to 1992. He held
several Vice President positions at Memorex Telex Corporation, a manufacturer
and marketer of computer terminal and peripheral equipment, most recently Vice
President and General Manager, Airline and Systems Business Group.
Mr. Switz joined the Company in January 1994. Prior to such time he was
employed at Burr-Brown Corporation, a manufacturer of precision micro-
electronics, from 1988, most recently as Vice President, Chief Financial Officer
and Director, Ventures and Systems Business.
20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.20 par value, trades on the Nasdaq Stock
Market National Market under the symbol "ADCT". The following table sets forth
the high and low daily sale prices for each quarter during the years ended
October 31, 1994 and 1993, as reported on that system.
1994 Low High
---- --- ----
Fourth Quarter $37.50 $47.75
Third Quarter 36.25 46.75
Second Quarter 32.25 42.75
First Quarter 31.00 38.75
1993
----
Fourth Quarter $29.25 $44.00
Third Quarter 20.13 31.25
Second Quarter 18.63 23.50
First Quarter 18.13 24.75
No cash dividends have been declared or paid during the past two years and
the Company has no present intention of declaring a cash dividend. The
Company's revolving credit agreements permit cash dividends only to the extent
of 25% of net income for the preceding four quarters.
As of December 15, 1994, there were approximately 2,175 holders of record
of the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain consolidated statement of income and
balance sheet information of ADC Telecommunications, Inc. and Subsidiaries for
the five years ended October 31, 1994. This summary should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this report. All share and per share amounts have been
restated for a two-for-one stock split effected in the form of a 100% stock
dividend in June 1993, and all amounts except per share amounts are presented in
thousands. No cash dividends have been declared or paid in any of the years
presented.
21
- -----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
STATEMENT OF INCOME DATA
NET SALES $448,735 $366,118 $316,496 $293,839 $259,802
COST OF PRODUCTS SOLD 221,448 178,572 155,074 148,614 133,802
-------- ------- -------- -------- --------
GROSS PROFIT 227,287 187,546 161,422 145,225 126,000
-------- ------- -------- -------- --------
EXPENSES:
Development and product engineering 48,974 40,988 36,063 32,315 25,462
Selling and administrative 110,799 93,311 82,966 74,369 62,793
Amortization of goodwill 3,135 2,798 2,720 1,953 920
Personnel reduction --- --- 3,800 --- ---
------- ------- ------- ------- -------
Total expenses 162,908 137,097 125,549 108,637 89,175
------- ------- ------- ------- -------
OPERATING INCOME 64,379 50,449 35,873 36,588 36,825
OTHER INCOME (EXPENSE), NET:
Interest 1,158 183 (942) (108) 1,255
Other non-operating expense (1,216) (895) (205) (75) 92
-------- -------- -------- -------- -------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 64,321 49,737 34,726 36,405 38,172
PROVISION FOR INCOME TAXES 23,800 18,101 13,700 14,380 15,269
-------- -------- -------- -------- -------
NET INCOME BEFORE EXTRAORDINARY ITEM 40,521 31,636 21,026 22,025 22,903
EXTRAORDINARY ITEM, NET OF TAXES (1,450) --- --- --- ---
-------- -------- -------- -------- -------
NET INCOME $ 39,071 $ 31,636 $ 21,026 $ 22,025 $ 22,903
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
AVERAGE COMMON SHARES OUTSTANDING 27,805 27,499 27,088 26,738 26,530
-------- -------- ------- -------- -------
-------- -------- ------- -------- -------
EARNINGS PER SHARE BEFORE
EXTRAORDINARY ITEM $ 1.46 $ 1.15 $ .78 $ .82 $ .86
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
EARNINGS PER SHARE $ 1.41 $ 1.15 $ .78 $ .82 $ .86
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
ORDERS $462,332 $375,637 $322,823 $284,993 $265,272
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
BALANCE SHEET DATA (October 31)
CASH AND CASH EQUIVALENTS $ 49,512 $ 16,324 $ 20,484 $ 30,109 $ 25,978
TOTAL ASSETS 334,684 280,054 240,762 247,169 181,665
LONG-TERM OBLIGATIONS:
Current maturities of long-term debt 400 300 324 1,412 1,257
Long-term debt 410 810 14,110 43,634 4,841
TOTAL STOCKHOLDERS' INVESTMENT 264,758 220,394 182,188 158,374 134,013
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The percentage relationships to net sales of certain income and expense
items for the three years ended October 31, 1994 and the percentage changes in
these income and expense items between years are contained in the following
table:
PERCENTAGE
PERCENTAGE OF NET SALES INCREASE BETWEEN YEARS
----------------------------- --------------------------
1994 1993
1994 1993 1992 versus 1993 versus 1992
------ ------ ------ ----------- -----------
NET SALES 100.0% 100.0% 100.0% 22.6% 15.7%
COST OF PRODUCTS SOLD (49.3) (48.8) (49.0) 24.0 15.2
------ ------ ------
GROSS PROFIT 50.7 51.2 51.0 21.2 16.2
EXPENSES:
Development and product engineering (11.0) (11.2) (11.4) 19.5 13.7
Selling and administrative (24.7) (25.5) (26.2) 18.7 12.5
Amortization of goodwill (.7) (.7) (.9) 12.0 2.9
Personnel reduction --- --- (1.2) -- --
------ ------ ------
OPERATING INCOME 14.3 13.8 11.3 27.6 40.6
OTHER INCOME (EXPENSE), NET:
Interest .3 .1 (.3) --- ---
Other non-operating expense (.3) (.3) --- 35.9 ---
------ ------ ------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 14.3 13.6 11.0 29.3 43.2
PROVISION FOR INCOME TAXES (5.3) (5.0) (4.4) 31.5 32.1
------ ------ ------
NET INCOME BEFORE EXTRAORDIN-
ARY ITEM 9.0 8.6 6.6 28.1 50.5
EXTRAORDINARY ITEM, NET OF
TAXES (.3) --- --- --- ---
------ ------ ------
NET INCOME 8.7% 8.6% 6.6% 23.5 50.5
------ ------ ------ ------ ------
------ ------ ------ ------ ------
23
RESULTS OF OPERATIONS
NET SALES: Net sales for the three years ended October 31, 1994 reflect
the following volume increases by product group and in total (dollars in
thousands):
- ------------------------------------------------------------------------------------------------------------
PERCENTAGE
INCREASE
NET SALES BETWEEN YEARS
-----------------------------------------------------------------------------------------
1994 1993 1992 1994 1993
------------------------------------------------------------------
Net Sales % Net Sales % Net Sales % vs. 1993 vs. 1992
--------- ------ --------- ------- --------- ------ -------- --------
TRANSMISSION $ 103,694 23.1% $ 69,386 18.9% $ 60,500 19.1% 49.4% 14.7%
NETWORKING 123,300 27.5 95,540 26.1 84,227 26.6 29.1 13.4
BROADBAND
CONNECTIVITY 221,741 49.4 201,192 55.0 171,769 54.3 10.2 17.1
--------- ----- --------- ----- --------- -----
TOTAL $ 448,735 100.0% $ 366,118 100.0% $ 316,496 100.0% 22.6 15.7
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
The 1994 and 1993 increases in net sales of transmission products are
attributable to sales of new products, primarily to public telecommunications
network providers. If the Company's new transmission products (products
introduced within the last three years) and continuing transmission product
enhancements meet with reasonable market acceptance, the Company anticipates
that net sales of transmission products will grow as a percentage of the
Company's total net sales.
The 1994 and 1993 increases in net sales of networking products primarily
represent increased sales of public network access equipment to private network
customers. The Company has recently introduced certain new networking products
employing Asynchronous Transfer Mode (ATM) technology and has additional ATM
networking introductions planned for 1995. If these products meet with
reasonable market acceptance, Company management anticipates continued strong
growth for the networking product group.
Within the broadband connectivity product group, net sales of ADC's digital
signaling cross-connect (DSX) modules and bays have declined as a percentage of
total net sales to 27.2% in 1994 from 28.7% in 1993 and 29.0% in 1992. Although
these products currently account for a substantial portion of the Company's
revenues, management believes that future sales of DSX and other copper products
utilizing telephone jacks will continue gradually to decline as a percentage of
total net sales primarily due to the ongoing evolution of technologies within
the telecommunications marketplace (see Item 1 Business -- The
Telecommunications Market) and the addition of new products to the ADC product
portfolio. As a result, the Company anticipates that net sales of the broadband
connectivity product group will continue gradually to decline as a percentage of
the Company's total net sales.
24
Net sales of fiber optic products represented 34.8%, 34.2% and 29.9% of
total net sales in 1994, 1993 and 1992, respectively. These year-to-year
increases reflect the Company's increasing emphasis on development and marketing
of fiber optic products. Management anticipates increasing the Company's fiber
optic product offerings which should expand total sales of such products.
GROSS PROFIT: The 1994 decrease in gross profit percentage, to 50.7% of
net sales, primarily reflects a less favorable product sales mix in 1994. The
slight 1993 increase in gross profit percentage to 51.2% of net sales, from
51.0% of net sales in 1992 primarily reflects a more favorable product sales
mix, successful manufacturing cost reduction efforts and higher net sales
volumes in 1993.
OPERATING EXPENSES: Total operating expenses represented 36.4%, 37.4% and
39.7% of net sales in 1994, 1993 and 1992, respectively. The lower 1994 and
1993 levels primarily reflect effective cost controls, higher net sales levels
and the absence of the 1992 personnel reduction charge, which represented 1.2%
of net sales in that year.
The 19.5% and 13.7% increases in development and product engineering
expenses in 1994 and 1993, respectively, also reflect significant investments in
new product development. The Company has been able to maintain its development
and product engineering expenses as a relatively constant percentage of net
sales during the 1992 to 1994 period by planning for and controlling such
expenditures.
The 18.7% and 12.5% increases in selling and administrative expenses in
1994 and 1993, respectively, also reflect increased marketing and selling
activities associated with new product introductions and expansion of markets,
and growth of the Company which has resulted in higher compensation expenses,
including increased incentive-based and stock-based compensation. Due to
effective management of expenditures, the Company has decreased its ratio of
selling and administration expenses as a percentage of net sales over the three-
year period.
Company management has reclassified amortization of goodwill expense from
"other expense" to "operating expenses" to conform with internal financial
performance measurement. This expense represents amortization of the goodwill
portions of the Fibermux, Kentrox and ALS acquisition prices, beginning at their
respective acquisition dates.
The major technological changes underway in the telecommunications industry
(see Item 1 Business -- The Telecommunications Market) will require the Company
to continue investing significantly in product development. Company management
recognizes the need to balance the
25
cost of product development with expense control and remains committed to
minimizing the rate of increase of such expenses.
OTHER INCOME (EXPENSE), NET: The interest income (expense) category
reflected net interest income earned on cash balances during 1994 and 1993 and
net interest expense during 1992. (See "Liquidity and Capital Resources" below
for a discussion of cash levels.)
INCOME TAXES: See Note 6 to the Consolidated Financial Statements included
in Part II, Item 8 of this report for a reconciliation of the federal statutory
tax rate to effective tax rates of 37.0%, 36.4% and 39.5% in 1994, 1993 and
1992, respectively. In addition to the non-deductible goodwill amortization
amounts discussed above which impact all three years, the 1994 and 1993 rates
reflect a 1% higher federal statutory rate as well as the beneficial impact of
tax credits. The 1994 increase in rate also reflects the lower impact of tax
credits on higher 1994 pre-tax income.
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No.
109 requires the recognition of deferred tax liabilities or assets for the
expected future tax consequences of temporary differences between the book and
tax bases of assets and liabilities. SFAS No. 109 was adopted prospectively and
the cumulative impact of adoption was not material.
EXTRAORDINARY ITEM: The extraordinary charge of $1,450,000, net of income
taxes, or $.05 per share, recorded in the quarter ended January 31, 1994,
represents the charge to clean up and repair the damage from an earthquake at
the ADC Fibermux facility in California.
NET INCOME: As a result of all of the items discussed above, net income
for the year ended October 31, 1994 of $39,071,000, or $1.41 per share,
represented a 23.5% increase over net income for the year ended October 31, 1993
of $31,636,000, or $1.15 per share. Net income for 1993 represented a 50.5%
increase from 1992 net income of $21,026,000, or $.78 per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in commercial
paper with maturities of less than 90 days, increased $33,188,000 during 1994
and decreased $4,160,000 and
26
$9,625,000 during 1993 and 1992, respectively. The 1994 increase primarily
reflects increased cash provided from operating activities and the absence of
debt repayments, offset by the $7,087,000 first quarter 1994 contingent
acquisition payment for ALS. ADC currently has no contingent acquisition
purchase price arrangements outstanding. In 1993 and 1992, property and
equipment additions and long-term debt repayments, offset by cash generated from
operating activities, represented the majority of the decreases. During the
three years ended October 31, 1994, 1993 and 1992, property and equipment
additions net of retirements totaled $21,788,000, $21,243,000 and $15,780,000,
respectively.
The Company may borrow up to $40 million under revolving credit agreements.
Borrowings under these agreements bear interest at floating short-term market
rates, can be repaid any time without penalty and can be converted to term loans
bearing interest principally at the prime rate, payable in annual installments
through December 2000. In May 1991, the Company's acquisition of Fibermux was
partially financed by borrowing the total $40 million. The full $40 million was
outstanding until April 1992, when the Company began repaying the debt. All
debt was repaid by April 1993. At October 31, 1994, the entire $40 million of
borrowings under these agreements was available to the Company and its long-term
debt to total capitalization ratio was .2%. The long-term debt to total
capitalization ratio was .4% at October 31, 1993.
Management expects that cash generated from operating activities plus
borrowings available under revolving credit agreements will be adequate to fund
operating requirements and property and equipment expenditures in 1995. However,
management recognizes the dynamic nature of the telecommunications industry and
the possibility that one or more of the Company's product initiatives may
achieve strong market acceptance during the year. In such event, the Company
would consider appropriate financing alternatives. Total property and equipment
additions for 1995 are expected to be approximately $30 million.
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(A) STATEMENT OF REGISTRANT
No separate financial statements of the Company's subsidiaries are included
herein because the Company is primarily an operating company and its
subsidiaries are wholly-owned.
(B) Consolidated Statements
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . 29
Consolidated Balance Sheets as of October 31, 1994 and 1993. . . . . . . . . 30
Consolidated Statements of Income for the years ended
October 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Stockholders' Investment
for the years ended October 31, 1994, 1993 and 1992 . . . . . . . . . . 32
Consolidated Statements of Cash Flows for the years ended
October 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . 33
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 34
Supplemental Schedules to Consolidated Financial Statements
Schedules V and VI -- Property and Equipment and
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . 41
Schedule X -- Supplementary Income Statement Information. . . . . . . . 42
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted as not required, not applicable or the information required has been
included elsewhere in the financial statements and related notes.
(C) SUPPLEMENTAL FINANCIAL INFORMATION -- Unaudited . . . . . . . . . . . . 43
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ADC Telecommunications, Inc.:
We have audited the accompanying consolidated balance sheets of ADC
TELECOMMUNICATIONS, INC. AND SUBSIDIARIES as of October 31, 1994 and 1993, and
the related consolidated statements of income, stockholders' investment and cash
flows for each of the three years in the period ended October 31, 1994. These
financial statements and the schedules referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ADC Telecommunications, Inc.
and Subsidiaries as of October 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules to
consolidated financial statements are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
December 16, 1994
29
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - OCTOBER 31
(IN THOUSANDS)
ASSETS
1994 1993
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 49,512 $ 16,324
Accounts receivable, net of reserves of $2,494
and $2,541 75,348 66,830
Inventories, net of reserves of $5,668
and $5,048 64,203 48,278
Prepaid income taxes and other 10,305 11,099
--------- ---------
Total current assets 199,368 142,531
--------- ---------
PROPERTY AND EQUIPMENT:
Land and buildings 31,620 30,794
Machinery and equipment 114,337 100,117
Furniture and fixtures 16,232 15,617
Accumulated depreciation and amortization (96,057) (83,652)
--------- ---------
Total property and equipment 66,132 62,876
--------- ---------
OTHER ASSETS, principally goodwill 69,184 74,647
--------- ---------
$ 334,684 $ 280,054
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 400 $ 300
Accounts payable 22,132 21,194
Accrued compensation and benefits 30,916 20,490
Accrued income taxes 5,804 2,368
Other accrued liabilities 8,101 10,549
--------- ---------
Total current liabilities 67,353 54,901
DEFERRED INCOME TAXES 2,163 3,949
LONG-TERM DEBT, less current maturities above 410 810
--------- ---------
Total liabilities 69,926 59,660
--------- ---------
STOCKHOLDERS' INVESTMENT:
Common stock (27,888 and 27,697 shares issued
and outstanding) 5,577 5,539
Paid-in capital 34,851 29,465
Retained earnings 225,476 186,405
Deferred compensation (1,146) (1,015)
--------- ---------
Total stockholders' investment 264,758 220,394
--------- ---------
$ 334,684 $ 280,054
--------- ---------
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
30
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1993 1992
--------- --------- ---------
NET SALES $ 448,735 $ 366,118 $ 316,496
COST OF PRODUCT SOLD 221,448 178,572 155,074
--------- --------- ---------
GROSS PROFIT 227,287 187,546 161,422
--------- --------- ---------
Gross profit percentage 50.7% 51.2% 51.0%
--------- --------- ---------
EXPENSES:
Development and product engineering 48,974 40,988 36,063
Selling and administration 110,799 93,311 82,966
Goodwill amortization 3,135 2,798 2,720
Personnel reduction -- -- 3,800
--------- --------- ---------
Total expenses 162,908 137,097 125,549
--------- --------- ---------
OPERATING INCOME 64,379 50,449 35,873
--------- --------- ---------
OTHER INCOME (EXPENSE), NET:
Interest 1,158 183 (942)
Other (1,216) (895) (205)
--------- --------- ---------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 64,321 49,737 34,726
PROVISION FOR INCOME TAXES 23,800 18,101 13,700
--------- --------- ---------
NET INCOME BEFORE
EXTRAORDINARY ITEM 40,521 31,636 21,026
EXTRAORDINARY ITEM, NET OF TAXES (1,450) -- --
--------- --------- ---------
NET INCOME $ 39,071 $ 31,636 $ 21,026
--------- --------- ---------
--------- --------- ---------
AVERAGE COMMON SHARES
OUTSTANDING 27,805 27,499 27,088
--------- --------- ---------
--------- --------- ---------
EARNINGS PER SHARE
BEFORE EXTRAORDINARY ITEM $ 1.46 $ 1.15 $ 0.78
--------- --------- ---------
--------- --------- ---------
EARNINGS PER SHARE $ 1.41 $ 1.15 $ 0.78
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
31
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED OCTOBER 31
(IN THOUSANDS)
Common Stock Deferred
------------------ Paid-in Retained Compen-
Shares Amount Capital Earnings sation
------ ------ ------- -------- --------
BALANCE
OCTOBER 31, 1991 13,429 $ 2,686 $ 22,285 $ 133,743 $ (340)
Stock issued for employee
benefit plans 181 36 3,460 -- (1,484)
Reduction of deferred
compensation -- -- -- -- 776
Net income -- -- -- 21,026 --
------- --------- --------- --------- ---------
BALANCE
OCTOBER 31, 1992 13,610 2,722 25,745 154,769 (1,048)
Stock split effected in the form
of a stock dividend 13,778 2,756 (2,756) -- --
Stock issued for employee
benefit plans 309 61 6,476 -- (781)
Reduction of deferred
compensation -- -- -- -- 814
Net income -- -- -- 31,636 --
------- --------- --------- --------- ---------
BALANCE
OCTOBER 31, 1993 27,697 5,539 29,465 186,405 (1,015)
Stock issued for employee
benefit plans 191 38 5,386 -- (1,262)
Reduction of deferred
compensation -- -- -- -- 1,131
Net income -- -- -- 39,071 --
------- --------- --------- --------- ---------
BALANCE
OCTOBER 31, 1994 27,888 $ 5,577 $ 34,851 $ 225,476 $ (1,146)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
32
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31
(IN THOUSANDS)
1994 1993 1992
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 39,071 $ 31,636 $ 21,026
Adjustments to reconcile net income to net cash from
operating activities -
Depreciation and amortization 23,366 20,587 19,878
Reduction in deferred compensation 1,131 814 776
Decrease in deferred income taxes (1,786) (444) (243)
Changes in assets and liabilities
Accounts receivable (8,518) (19,416) (6,041)
Inventories (15,925) (9,215) 1,364
Prepaid income taxes and other assets 1,010 (3,586) (921)
Accounts payable 8,438 2,967 560
Accrued liabilities 11,414 6,105 (1,644)
--------- --------- ---------
Total cash from operating activities 58,201 29,448 34,755
--------- --------- ---------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Property and equipment additions, net (21,788) (21,243) (15,780)
Acquisition payments (7,087) (2,199) --
Investment in technology -- (763) --
Long-term investments -- (1,835) --
--------- --------- ---------
Total cash used for investment activities (28,875) (26,040) (15,780)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in long-term debt (300) (13,324) (30,612)
Common stock issued 4,162 5,756 2,012
--------- --------- ---------
Total cash from (used for) financing activities 3,862 (7,568) (28,600)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 33,188 (4,160) (9,625)
CASH AND CASH EQUIVALENTS, beginning of period 16,324 20,484 30,109
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 49,512 $ 16,324 $ 20,484
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 574 $ 308 $ 2,271
Income taxes paid $ 21,802 $ 18,206 $ 13,361
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
33
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS AND OPERATIONS - The consolidated financial statements include the
accounts of ADC Telecommunications, Inc. (a Minnesota corporation) and its
wholly-owned subsidiaries, referred to collectively herein as the Company.
All significant intercompany transactions and balances have been eliminated
in consolidation.
The Company designs, manufactures and markets a broad range of
transmission, and networking systems, and physical connectivity products
for broadband telecommunications networks utilizing copper, coax, fiber
optic and wireless transmission methods. Revenue is recognized at the time
of shipment. Export sales were $67,113,000, $58,919,000, and $49,347,000
in 1994, 1993 and 1992, respectively.
CASH EQUIVALENTS - Cash equivalents primarily represent short-term
investments in commercial paper with maturities of three months or less.
These investments are reflected in the accompanying consolidated balance
sheets at cost, which approximates market.
INVENTORIES - Inventories include material, labor and overhead and are
stated at the lower of first-in, first-out cost or market. Inventories at
October 31 consisted of:
1994 1993
--------- ---------
(In Thousands)
Purchased materials and manufactured
products $ 57,031 $ 42,889
Work-in-process 7,172 5,389
--------- ---------
$ 64,203 $ 48,278
--------- ---------
--------- ---------
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Additions and improvements to property and equipment are capitalized at
cost while maintenance and repair expenditures are charged to operations as
incurred.
Depreciation charges are computed using the straight-line method for
financial reporting purposes and both straight-line and accelerated methods
for income tax purposes. For financial reporting purposes, depreciation is
provided over the following estimated useful lives:
Years
-----
Buildings and improvements 5-30
Machinery and equipment 3-10
Furniture and fixtures 3-10
GOODWILL AND OTHER INTANGIBLES - The excess of the cost over the net assets
of acquired businesses (goodwill of $77,000,000 at October 31, 1994 and
1993) is being amortized on a straight-line basis over 25 years. Related
accumulated amortization at October 31, 1994 and 1993 was $11,788,000 and
$8,653,000, respectively. Other intangibles are being amortized on a
straight-line basis over 5 years.
RESEARCH AND DEVELOPMENT COSTS - The Company's policy is to expense all
research and development costs in the period incurred.
WARRANTY COSTS - The Company warrants most of its products against defects
in materials and workmanship under normal use and service for periods
extending to fifteen years. Historically, warranty costs have been
insignificant. The Company maintains reserves for warranty costs based on
this experience.
34
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
EARNINGS PER SHARE - Earnings per share is computed using the weighted
average number of common shares outstanding during the year, after
consideration of the dilutive effect of stock options and restricted stock
awards.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform to the current year financial statement presentation. These
reclassifications had no impact on previously reported results of
operations or stockholders' investment.
(2) EXTRAORDINARY ITEM:
The building that serves as headquarters for Fibermux Corporation
(Fibermux), a wholly-owned subsidiary of the Company, suffered damage as a
result of the earthquake that struck Los Angeles on January 17, 1994. The
facility sustained damages of $2,300,000 (net of the related $850,000 tax
benefit). All operations resumed by February 8, 1994.
(3) ACQUISITIONS:
Effective May 6, 1991, the Company acquired Fibermux. During the third
quarter of 1990, the Company acquired technology and other assets of TELINQ
Systems Incorporated and the stock of American Lightwave Systems, Inc.
(ALS). Payments related to these acquisitions through October 31, 1994
totalled $74,050,000.
These acquisitions have been accounted for as purchases. Accordingly, the
total purchase prices were allocated to the net assets acquired based on
estimated fair values at the dates of the acquisitions. The excess of
cost over the net assets acquired has been recorded as goodwill. The
results of operations have been included in the Consolidated Statements of
Income from the respective acquisition dates. The inclusion of financial
data for these acquisitions prior to the dates of acquisition would not
have materially affected reported results.
(4) DEBT:
The Company has revolving credit agreements which permit borrowing up to
$40,000,000 on an unsecured basis, principally at prevailing market rates
of interest. The agreements require, among other matters, that the Company
meet certain defined net worth, interest coverage and liability to equity
ratios, and restrict cash dividends. The Company was in compliance with
these covenants at October 31, 1994. The Company pays commitment fees
based upon the average unused amounts of the commitments. There are no
compensating balance requirements.
In May 1991, the Company borrowed $40,000,000 under the revolving credit
agreements to partially finance the acquisition of Fibermux. The debt
outstanding under such agreements was repaid during 1993 and 1992. There
was no outstanding debt under these agreements during 1994. The weighted
average annual interest rates during the period borrowings were outstanding
were 4.9%, and 5.3% for 1993 and 1992, respectively.
At October 31, 1994 and 1993, the Company had a mortgage note payable of
$810,000 and $1,100,000 respectively, collateralized by certain land,
buildings and equipment. The note is payable in annual installments of
approximately $400,000 through 1996 and bears interest at a rate of 7.55%.
35
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(5) EMPLOYEE BENEFIT PLANS:
PENSION PLAN - The Company maintains a defined benefit plan covering a
majority of its employees. The Company funds the plan in accordance with
the requirements of Federal laws and regulations. Plan assets consist of
fixed income securities and a managed portfolio of equity securities.
Pension expense included the following components:
1994 1993 1992
------- ------- -------
(In Thousands)
Service cost for benefits
earned during the period $ 1,804 $ 1,828 $ 1,412
Interest cost on the projected
benefit obligation 1,522 1,348 1,207
Return on assets (633) (2,137) (1,216)
Net amortization and deferral (700) 984 266
------- ------- -------
$ 1,993 $ 2,023 $ 1,669
------- ------- -------
------- ------- -------
Discount rate used to determine
actuarial present value of
benefits at October 31 7.5% 7.0% 7.0%
------- ------- -------
------- ------- -------
The rate of compensation used to measure the projected benefit obligation
was 5% in 1994, 5% in 1993 and 6% in 1992. The expected long-term rate of
return on plan assets was 9%.
The following table sets forth the funded status of the plan as of
October 31:
1994 1993
--------- ---------
(In Thousands)
Accumulated benefit obligation:
Vested $ (17,857) $ (16,282)
Nonvested (1,405) (1,248)
--------- ---------
Total (19,262) (17,530)
Excess of projected benefit
obligation over accumulated
benefit obligation (3,164) (4,216)
--------- ---------
Projected benefit obligation (22,426) (21,746)
Market value of plan assets 17,589 16,990
--------- ---------
Unfunded projected benefit obligation (4,837) (4,756)
Unrecognized net (gain) loss (1,922) (872)
Unrecognized prior service cost 1,967 2,092
Unrecognized transition liability 922 993
--------- ---------
Total accrued pension liability $ (3,870) $ (2,543)
--------- ---------
--------- ---------
36
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(5) EMPLOYEE BENEFIT PLANS (CONTINUED):
The Company also maintains supplemental defined benefit retirement plans
for members of the Board of Directors and for certain officers. The cost
of these plans was $352,000, $210,000 and $257,000 for 1994, 1993 and
1992, respectively.
RETIREMENT SAVINGS PLAN - The Company has a voluntary plan of investment
available to any employee who has completed one year of service. The
Company contributes 1% of wages to the Retirement Savings Plan on behalf of
all employees covered under the plan. Based on Company performance, salary
deferrals up to 6% of wages are partially matched by the Company.
Employees are fully vested in salary deferrals and Company contributions at
all times. The contributions to this plan totalled $6,778,000,
$3,210,000, and $2,639,000 in 1994, 1993 and 1992, respectively. A portion
of the cash contributions is invested in the Company's stock by the Plan's
trustee.
STOCK AWARD PLANS - The Company maintains a Stock Incentive Plan which
provides for the granting of certain stock awards, including stock options
at fair market value and restricted shares, to key employees of the
Company.
The Company also maintains a Non-Employee Director Stock Option Plan in
order to enhance the ability to attract and retain the services of
experienced and knowledgeable outside directors. The plan provides for
granting a maximum of 110,000 nonqualified stock options at fair
market value.
The Company issued shares of common stock to certain employees which are
restricted as to their transferability through October 31, 1996. The
market value of such stock at the date of issuance is being amortized over
the restricted period. The unamortized amount of the resulting deferred
compensation is recorded as a reduction of stockholders' investment. In
addition, the Company awarded stock retention bonuses which provide for
cash payments to offset the personal income taxes incurred upon the lapsing
of stock restriction. The compensation expense associated with this plan
was $3,213,000, $1,938,000, and $1,008,000 in 1994, 1993 and 1992,
respectively.
37
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(5) EMPLOYEE BENEFIT PLANS(CONTINUED):
The following schedule summarizes activity in the plans:
Stock Restricted Grant
Options Stock Price
--------- ---------- --------
Outstanding at October 31, 1992 1,402,840 124,468 $7-$18
Granted 93,200 28,300 $20-$42
Exercised (474,737) -- $7-$18
Restrictions lapsed -- (23,000) $10-$18
Cancelled (78,933) (19,210) $13-$26
--------- -------
Outstanding at October 31, 1993 942,370 110,558 $7-$42
Granted 224,135 34,115 $32-$44
Exercised (162,199) -- $7-$23
Restrictions lapsed -- (86,158) $13-$30
Cancelled (17,903) (8,110) $13-$39
--------- -------
Outstanding at October 31, 1994 986,403 50,405 $7-$44
--------- -------
--------- -------
Exercisable at October 31, 1994 783,393 -- $7-$42
--------- ------- --------
--------- ------- --------
(6) CAPITAL STOCK:
AUTHORIZED STOCK - The Company is authorized to issue 100,000,000 shares of
common stock at 20 cents par value and 10,000,000 shares of preferred
stock, no par value. The Board of Directors has the power to determine the
dividend, voting, conversion and redemption rights of each series of
preferred stock which they may create. There are no preferred shares
issued.
STOCK SPLIT - On May 26, 1993, the Company declared a two-for-one stock
split effected in the form of a 100% stock dividend paid June 28, 1993 to
shareholders of record as of June 15, 1993. The share and per share
information in the accompanying financial statements have been adjusted to
reflect the effect of the dividend.
SHAREHOLDER RIGHTS PLAN - The Company has a Shareholder Rights Plan which
provides that if any person or group acquires 20% or more of the Company's
common stock, each Right not owned by such person or group will entitle its
holder to purchase, at the Right's then-current purchase price ($16 2/3 at
October 31, 1994), common stock of the Company having a value of twice the
Right's purchase price. The Rights would not be triggered, however, if the
acquisition of 20% or more of the Company's common stock is pursuant to a
tender offer or exchange for all outstanding shares of the Company's common
stock which is determined by the Board of Directors to be fair and in the
best interests of the Company and its shareholders. If the Board of
Directors determines that a 10% shareholder's interest is likely to have an
adverse effect on the long-term interests of the Company and its
shareholders, the Rights may also become exercisable. The Rights are
redeemable at 1 2/3 cents any time prior to the time they become
exercisable. The Rights will expire on October 6, 1996 if not previously
redeemed or exercised.
38
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(6) INCOME TAXES:
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS
No. 109 requires the recognition of deferred tax liabilities or assets for
the expected future tax consequences of temporary differences between the
book and tax bases of assets and liabilities. SFAS No. 109 was adopted
prospectively and the cumulative impact of adoption was not material.
The components of the provision for income taxes are as follows:
1994 1993 1992
--------- -------- --------
(In Thousands)
Current taxes payable -
Federal $ 21,357 $ 17,820 $ 12,071
Foreign 330 426 567
State 3,211 2,859 1,629
-------- -------- --------
24,898 21,105 14,267
Deferred (1,098) (3,004) (567)
-------- -------- --------
Total provision $ 23,800 $ 18,101 $ 13,700
-------- -------- --------
-------- -------- --------
The Company records a reduction in income taxes payable for qualifying tax
credits in the year in which they occur.
The benefit for deferred taxes is primarily due to timing differences in
the tax deductibility of employee benefit plan costs, depreciation and
certain accrued expenses and reserves which are not yet deductible for
income tax purposes.
The effective income tax rate differs from the Federal statutory rate as
follows:
1994 1993 1992
---- ---- ----
Federal statutory rate 35% 35% 34%
Current year tax credits utilized
for research and development (2) (2) (3)
Goodwill 2 2 3
State income taxes, net 3 3 3
Other, net (1) (2) 2
---- ---- ----
Effective income tax rate 37% 36% 39%
---- ---- ----
---- ---- ----
Deferred tax assets and liabilities as of October 31, 1994 are comprised of
the following:
Current deferred tax assets:
Asset valuation reserves $ 3,059
Accrued liabilities 4,339
Other 326
--------
Total $ 7,724
--------
--------
Non-current deferred tax assets (liabilities):
Depreciation $ (2,536)
Other 373
--------
Total $ (2,163)
--------
--------
39
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) INCOME TAXES (CONTINUED):
The Company's United States income tax returns for the years 1990 and 1991
are currently under examination. Management believes that adequate
provision for income taxes has been made for all years through 1994.
(8) COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES - A portion of the Company's operations are conducted
using leased equipment and facilities. These leases are non-cancellable
and renewable with expiration dates ranging through the year 2004. The
rental expense included in the accompanying consolidated income statements
was $5,411,000, $5,347,000, and $5,324,000 for 1994, 1993 and 1992,
respectively.
The following is a schedule of future minimum rental payments required
under all non-cancellable operating leases as of October 31, 1994:
(In Thousands)
--------------
1995 $ 5,078
1996 3,711
1997 2,281
1998 1,753
1999 and Thereafter 3,274
--------
$ 16,097
--------
--------
CONTINGENCIES - The Company is exposed to a number of asserted and
unasserted potential claims encountered in the normal course of business.
In the opinion of management, the resolution of these matters will not have
a material adverse effect on the Company's financial position or results of
operations.
CHANGE OF CONTROL - The Board of Directors has approved the extension of
certain employee benefits, including salary continuation to key employees,
in the event of a change of control of the Company. The Board has retained
the flexibility to cancel such provisions under certain circumstances.
40
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULES V AND VI - PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION:
Transactions in property and equipment and accumulated depreciation accounts for
the years ended October 31, 1994, 1993, and 1992 were as follows:
Machinery Furniture
Land and and and
Buildings Equipment Fixtures Total
--------- --------- --------- -----
(In Thousands)
PROPERTY AND EQUIPMENT
Balance at October 31, 1991 $ 24,702 $ 78,716 $ 13,361 $ 116,779
Additions 4,320 10,844 1,427 16,591 *
Retirements (100) (5,098) (731) (5,929)
--------- --------- --------- ---------
Balance at October 31, 1992 28,922 84,462 14,057 127,441
Additions 2,073 17,803 1,670 21,546
Retirements (201) (2,148) (110) (2,459)
--------- --------- --------- ---------
Balance at October 31, 1993 30,794 100,117 15,617 146,528
Additions 1,462 21,053 860 23,375
Retirements (636) (6,833) (245) (7,714)
--------- --------- --------- ---------
Balance at October 31, 1994 $ 31,620 $ 114,337 $ 16,232 $ 162,189
--------- --------- --------- ---------
--------- --------- --------- ---------
ACCUMULATED DEPRECIATION
Balance at October 31, 1991 $ 8,271 $ 43,691 $ 7,009 $ 58,971
Provisions 1,699 12,439 1,505 15,643
Retirements (3) (4,403) (712) (5,118)
--------- --------- --------- ---------
Balance at October 31, 1992 9,967 51,727 7,802 69,496
Provisions 1,852 13,026 1,435 16,313
Retirements (201) (1,859) (97) (2,157)
--------- --------- --------- ---------
Balance at October 31, 1993 11,618 62,894 9,140 83,652
Provisions 2,025 14,825 1,673 18,523
Retirements (24) (5,899) (195) (6,118)
--------- --------- --------- ---------
Balance at October 31, 1994 $ 13,619 $ 71,820 $ 10,618 $ 96,057
--------- --------- --------- ---------
--------- --------- --------- ---------
* Includes $2,311,000 acquired in connection with the purchase of Fibermux in
1991 (see note 2 to the consolidated financial statements).
41
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION:
The following amounts were charged to cost of products sold and operating
expenses as follows:
1994 1993 1992
--------- --------- ---------
(In Thousands)
Advertising $ 5,258 $ 4,284 $ 3,836
--------- --------- ---------
--------- --------- ---------
The amounts of royalties, taxes other than payroll and income taxes, and
repairs and maintenance are not material in the aggregate.
42
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION -UNAUDITED
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
1994
--------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
Net Sales $ 91,176 $ 113,573 $ 115,688 $ 128,298 $ 448,735
--------- --------- --------- --------- ---------
Gross Profit 45,929 57,413 58,342 65,603 227,287
--------- --------- --------- --------- ---------
Income Before Income
Taxes and Extraordinary
Item 10,626 16,008 17,456 20,231 64,321
Provision
for Income Taxes 3,931 5,923 6,459 7,487 23,800
--------- --------- --------- --------- ---------
Net Income Before
Extraordinary Item $ 6,695 $ 10,085 $ 10,997 $ 12,744 $ 40,521
Extraordinary Item, Net (1,450) -- -- -- (1,450)
--------- --------- --------- --------- ---------
Net Income $ 5,245 $ 10,085 $ 10,997 $ 12,744 $ 39,071
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Average Common
Shares Outstanding 27,735 27,784 27,829 27,870 27,805
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings Per Share
Before Extr. Item $ 0.24 $ 0.36 $ 0.40 $ 0.46 $ 1.46
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings Per Share $ 0.19 $ 0.36 $ 0.40 $ 0.46 $ 1.41
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
1993
--------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
Net Sales $ 78,648 $ 88,999 $ 93,346 $ 105,125 $ 366,118
--------- --------- --------- --------- ---------
Gross Profit 40,138 45,291 48,638 53,479 187,546
--------- --------- --------- --------- ---------
Income
Before Income Taxes 8,350 11,212 14,345 15,830 49,737
Provision
for Income Taxes 3,090 4,148 5,164 5,699 18,101
--------- --------- --------- --------- ---------
Net Income $ 5,260 $ 7,064 $ 9,181 $ 10,131 $ 31,636
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Average Common
Shares Outstanding 27,324 27,484 27,544 27,641 27,499
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings Per Share $ 0.19 $ 0.26 $ 0.33 $ 0.37 $ 1.15
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Part I of this Report for information with respect to executive
officers of the Company. Pursuant to General Instruction G(3), reference is
made to the information contained under the captions "Election of Directors" and
"Section 16(a) Reporting" in the Company's definitive proxy statement for its
1995 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission on or before February 28, 1995, which information is incorporated
herein.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), reference is made to the
information contained under the caption "Executive Compensation" (except for the
information set forth under the subcaption "Compensation and Organization
Committee Report on Executive Compensation," which is not incorporated herein)
in the Company's definitive proxy statement for its 1995 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission on or
before February 28, 1995, which information is incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), reference is made to the
information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive proxy statement
for its 1995 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission on or before February 28, 1995, which information is
incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are
included in Part II, Item 8 of this Annual Report on Form 10-K:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of October 31, 1994 and 1993.
Consolidated Statements of Income for the years ended October 31,
1994, 1993 and 1992.
Consolidated Statements of Changes in Stockholders' Investment for
the years ended October 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the years
ended October 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
Supplemental Financial Information (Unaudited).
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are included in Part II,
Item 8 of this Annual Report on Form 10-K:
Schedules V --Property and Equipment and Accumulated
and VI Depreciation.
Schedule X --Supplementary Income Statement Information.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted as not required or not applicable, or the information required has been
included elsewhere in the financial statements and related notes.
45
3. LISTING OF EXHIBITS
Exhibit
Number Description
- ------- -----------
3-a Restated Articles of Incorporation of ADC Telecommunications, Inc., as
amended to date. (Incorporated by reference to Exhibit 4(b) of the
Company's Registration Statement on Form S-8 dated March 11, 1994, for
the Company's 1994 Employee Stock Purchase Plan.)
3-b Composite Restated Bylaws of ADC Telecommunications, Inc., as amended
to date. (Incorporated by reference to Exhibit 3-b to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1989.)
4-a Specimen certificate for shares of Common Stock of ADC
Telecommunications, Inc. (Incorporated by reference to Exhibit 4-a to
the Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1989.)
4-b Restated Articles of Incorporation of ADC Telecommunications, Inc., as
amended to date. (Incorporated by reference to Exhibit 4(b) of the
Company's Registration Statement on Exhibit Form S-8 dated March 11,
1994, for the Company's 1994 Employee Stock Purchase Plan.)
4-c Composite Restated Bylaws of ADC Telecommunications, Inc., as amended
to date (Incorporated by reference to Exhibit 3-b to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1989.)
4-d Amended and Restated Rights Agreement, amended and restated as of
August 16, 1989, between ADC Telecommunications, Inc. and Norwest Bank
Minnesota, N.A., as Rights Agent. (Incorporated by reference to
Exhibit 1 to Amendment No. 1 on Form 8 dated August 16, 1989, to the
Company's Registration Statement on Form 8-A dated September 23,
1986.)
10-a* Stock Option and Restricted Stock Plan, restated as of January 26,
1988. (Incorporated by reference to Exhibit 10-a to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30, 1988.)
10-b* Amendment to Stock Option and Restricted Stock Plan dated as of
September 26, 1989. (Incorporated by reference to Exhibit 10-e to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1989.)
10-c* The ADC Telecommunications, Inc. 1991 Stock Incentive Plan, as
amended. (Incorporated by reference to Exhibit 10-a to the Company's
Quarterly Report on Form 10-Q for the quarter ended January 31, 1993.)
10-d* Management Incentive Plan for the fiscal year ended October 31, 1993.
(Incorporated by reference to Exhibit 10-f to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1993.)
10-e* FITL Management Incentive Plan for the fiscal year ended October 31,
1993. (Incorporated by reference to Exhibit 10-g to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1993.)
10-f* International Management Incentive Plan for the fiscal year ended
October 31, 1993. (Incorporated by reference to Exhibit 10-h to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993.)
46
Exhibit
Number Description
- ------- -----------
10-g* Transmission Market Development Management Incentive Plan for the
fiscal year ended October 31, 1993. (Incorporated by reference to
Exhibit 10-i to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993.)
10-h* Vice President of Sales and Customer Service Management Incentive Plan
for the fiscal year ended October 31, 1993. (Incorporated by
reference to Exhibit 10-j to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1993.)
10-i* Fibermux Management Incentive Plan for the fiscal year ended
October 31, 1993. (Incorporated by reference to Exhibit 10-k to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993.)
10-j* Kentrox Management Incentive Plan for the fiscal year ended
October 31, 1993. (Incorporated by reference to Exhibit 10-l to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993.)
10-k* Access Platform System Management Incentive Plan for the fiscal year
ended October 31, 1994. (Incorporated by reference to Exhibit 10-a to
the Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1994.)
10-l* ALS Management Incentive Plan for the fiscal year ended October 31,
1994. (Incorporated by reference to Exhibit 10-b to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1994.)
10-m* Business Development Management Incentive Plan for the fiscal year
ended October 31, 1994. (Incorporated by reference to Exhibit 10-c to
the Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1994.)
10-n* Cable Management Management Incentive Plan for the fiscal year ended
October 31, 1994. (Incorporated by reference to Exhibit 10-d to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 31,
1994.)
10-o* Corporate Management Incentive Plan for the fiscal year ended
October 31, 1994. (Incorporated by reference to Exhibit 10-e to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 31,
1994.)
10-p* Fibermux Management Incentive Plan for the fiscal year ended
October 31, 1994. (Incorporated by reference to Exhibit 10-f to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 31,
1994.)
10-q* International Management Incentive Plan for the fiscal year ended
October 31, 1994. (Incorporated by reference to Exhibit 10-g to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 31,
1994.)
10-r* Kentrox Management Incentive Plan for the fiscal year ended
October 31, 1994. (Incorporated by reference to Exhibit 10-h to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 31,
1994.)
10-s* Vice President of Sales and Customer Service Management Incentive Plan
for the fiscal year ended October 31, 1994. (Incorporated by
reference to Exhibit 10-i to the Company's Quarterly Report on Form
10-Q for the quarter ended July 31, 1994.)
47
Exhibit
Number Description
- ------- -----------
10-t* Senior Vice President Transmission Group Management Incentive Plan for
the fiscal year ended October 31, 1994. (Incorporated by reference to
Exhibit 10-j to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1994.)
10-u* Transmission Management Incentive Plan for the fiscal year ended
October 31, 1994. (Incorporated by reference to Exhibit 10-k to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 31,
1994.)
10-v* Transmission Product and Marketing Management Management Incentive
Plan for the fiscal year ended October 31, 1994. (Incorporated by
reference to Exhibit 10-l to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1994.)
10-w* Transmission Product and Marketing Management (International)
Management Incentive Plan for the fiscal year ended October 31, 1994.
(Incorporated by reference to Exhibit 10-m to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1994.)
10-x* Agreement, dated as of November 1, 1991, between ADC
Telecommunications, Inc. and Charles M. Denny, Jr., related to
retirement and consulting arrangements. (Incorporated by reference to
Exhibit 10-h to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1991.)
10-y* Supplemental Executive Retirement Plan Agreement for William J.
Cadogan, dated as of November 1, 1990, between ADC Telecommunications,
Inc. and William J. Cadogan. (Incorporated by reference to
Exhibit 10-ee to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993.)
10-z* ADC Telecommunications, Inc. Change in Control Severance Pay Plan
Statement and Summary Plan Description. (Incorporated by reference to
Exhibit 10-q to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1989.)
10-aa* Compensation Plan for Directors of ADC Telecommunications, Inc.,
restated as of December 31, 1988. (Incorporated by reference to
Exhibit 10-b to the Company's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1989.)
10-bb* First Amendment of the Compensation Plan for Directors of ADC
Telecommunications, Inc. restated as of December 31, 1988.
(Incorporated by reference to Exhibit 10-s to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1989.)
10-cc* ADC Telecommunications, Inc. Directors' Supplemental Retirement Plan
dated as of January 23, 1990. (Incorporated by reference to
Exhibit 10-m to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1990.)
10-dd* ADC Telecommunications, Inc. Nonemployee Director Stock Option Plan.
(Incorporated by reference to Exhibit 19-b of the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1991.)
10-ee* ADC Telecommunications, Inc. Deferred Compensation Plan, dated as of
November 1, 1978. (Incorporated by reference to Exhibit 10-n to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1990.)
48
Exhibit
Number Description
- ------- -----------
10-ff* ADC Telecommunications, Inc. Excess Benefits Plan, dated as of
January 1, 1985. (Incorporated by reference to Exhibit 10-o to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1990.)
10-gg* ADC Telecommunications, Inc. 401(k) Excess Plan, dated as of
September 1, 1990. (Incorporated by reference to Exhibit 10-p to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1990.)
10-hh Lease, dated February 25, 1991, between American Lightwave Systems,
Inc. and 999 Research Parkway, Inc. (Incorporated by reference to
Exhibit 10-t to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1991.)
10-ii Lease, dated March 1, 1986, between ADC Telecommunications, Inc. and
Metro International Ltd. as amended. (Incorporated by reference to
Exhibit 10-w to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1991.)
10-jj Lease Agreement, dated October 26, 1990, between Lutheran Brotherhood
and ADC Telecommunications, Inc. (Incorporated by reference to
Exhibit 10-w to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1990.)
10-kk Lease Agreement, dated August 21, 1990, between Minnetonka Corporate
Center I Limited Partnership and ADC Telecommunications, Inc.
(Incorporated by reference to Exhibit 10-x to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1990.)
10-ll Sublease Agreement, dated October 31, 1990, between Seagate
Technology, Inc. and ADC Telecommunications, Inc. (Incorporated by
reference to Exhibit 10-y to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1990.)
10-mm Renewal of Lease, dated July 9, 1990, between ADC Telecommunications,
Inc. and Metro International General Partner Canada, Inc.
(Incorporated by reference to Exhibit 10-z to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1990.)
10-nn Lease, dated September 30, 1993, between American Lightwave Systems,
Inc. and 999 Research Parkway, Inc. (Incorporated by reference to
Exhibit 10-bb to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993.)
10-oo Lease, dated August 2, 1993, between ADC Telecommunications, Inc. and
Engelsma Limited Partnership. (Incorporated by reference to
Exhibit 10-cc to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993.)
10-pp Lease, dated December 18, 1992, between Fibermux Corporation and
Greenville Dallas Delaware, Inc. (Incorporated by reference to
Exhibit 10-dd to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993.)
21-a Subsidiaries of the Company.
49
Exhibit
Number Description
- ------- -----------
23-a Consent of Independent Public Accountants to incorporation by
reference of financial material included in this report into Company's
Registration Statement on Form S-8 (File No. 2-83584), Registration
Statement on Form S-8 (File No. 33-22654), Registration Statement on
Form S-8 (File No. 33-40356), Registration Statement on Form S-8 (File
No. 33-40357), Registration Statement on Form S-8 (File No. 33-52635)
and Registration Statement on Form S-8 (File No. 33-52637).
24-a Powers of attorney.
27-a Financial Data Schedule.
There have been excluded from the exhibits filed with this report
instruments defining the rights of holders of long-term debt of the
Company where the total amount of the securities authorized under such
instruments does not exceed 10% of the total assets of the Company.
The Company hereby agrees to furnish a copy of any such instruments to
the Commission upon request.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
October 31, 1994.
(c) See Exhibit Index and Exhibits attached to this report.
(d) See Financial Statement Schedules included in Part II, Item 8 of this
report.
__________________
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to the Annual Report on Form 10-K.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ADC TELECOMMUNICATIONS, INC.
Dated: December 22, 1994 By: /s/ Robert E. Switz
-----------------------
Robert E. Switz
Vice President, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
William J. Cadogan* Chairman of the Board,
President, Chief Executive Officer,
Chief Operating Officer and Director
(principal executive officer)
By: /s/ Robert E. Switz Vice President, Chief Financial Officer
------------------- (principal financial officer and principal
Robert E. Switz accounting officer)
Dated: December 22, 1994
James C. Castle* Director
Thomas E. Holloran* Director
B. Kristine Johnson* Director
Charles W. Oswald* Director
Alan E. Ross* Director
Jean-Pierre Rosso* Director
Donald M. Sullivan* Director
Warde F. Wheaton* Director
John D. Wunsch* Director
* By Power of Attorney filed with this report as Exhibit 24-a hereto.
51
ADC TELECOMMUNICATIONS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1994
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
3-a Restated Articles of Incorporation of ADC Telecommunications, N/A
Inc., as amended to date. (Incorporated by reference to
Exhibit 4(b) of the Company's Registration Statement on Form S-8
dated March 11, 1994, for the Company's 1994 Employee Stock
Purchase Plan.)
3-b Composite Restated Bylaws of ADC Telecommunications, Inc., as N/A
amended to date (Incorporated by reference to Exhibit 3-b to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1989.)
4-a Specimen certificate for shares of Common Stock of ADC N/A
Telecommunications, Inc. (Incorporated by reference to
Exhibit 4-a to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1989.)
4-b Restated Articles of Incorporation of ADC Telecommunications, N/A
Inc., as amended to date. (Incorporated by reference to
Exhibit 4(b) of the Company's Registration Statement on Form S-8
dated March 11, 1994, for the Company's 1994 Employee Stock
Purchase Plan.)
4-c Composite Restated Bylaws of ADC Telecommunications, Inc., as N/A
amended to date (Incorporated by reference to Exhibit 3-b to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1989.)
4-d Amended and Restated Rights Agreement, amended and restated as N/A
of August 16, 1989, between ADC Telecommunications, Inc. and
Norwest Bank Minnesota, N.A., as Rights Agent. (Incorporated by
reference to Exhibit 1 to Amendment No. 1 on Form 8 dated
August 16, 1989, to the Company's Registration Statement on
Form 8-A dated September 23, 1986.)
10-a Stock Option and Restricted Stock Plan, restated as of N/A
January 26, 1988. (Incorporated by reference to Exhibit 19-a
to the Company's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1988.)
10-b Amendment to Stock Option and Restricted Stock Plan dated as of N/A
September 26, 1989. (Incorporated by reference to Exhibit 10-e
to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1989.)
10-c The ADC Telecommunications, Inc. 1991 Stock Incentive Plan, as N/A
amended. (Incorporated by reference to Exhibit 10-a to the
Company's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1993.)
52
Exhibit
Number Description Page
- ------- ----------- ----
10-d Management Incentive Plan for the fiscal year ended October 31, N/A
1993. (Incorporated by reference to Exhibit 10-f to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993.)
10-e FITL Management Incentive Plan for the fiscal year ended N/A
October 31, 1993. (Incorporated by reference to Exhibit 10-g
to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1993.)
10-f International Management Incentive Plan for the fiscal year N/A
ended October 31, 1993. (Incorporated by reference to
Exhibit 10-h to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993.)
10-g Transmission Market Development Management Incentive Plan for N/A
the fiscal year ended October 31, 1993. (Incorporated by
reference to Exhibit 10-i to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1993.)
10-h Vice President of Sales and Customer Service Management N/A
Incentive Plan for the fiscal year ended October 31, 1993.
(Incorporated by reference to Exhibit 10-j to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1993.)
10-i Fibermux Management Incentive Plan for the fiscal year ended N/A
October 31, 1993. (Incorporated by reference to Exhibit 10-k
to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1993.)
10-j Kentrox Management Incentive Plan for the fiscal year ended N/A
October 31, 1993. (Incorporated by reference to Exhibit 10-l
to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1993.)
10-k Access Platform System Management Incentive Plan for the fiscal N/A
year ended October 31, 1994. (Incorporated by reference to
Exhibit 10-a to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1994.)
10-l ALS Management Incentive Plan for the fiscal year ended N/A
October 31, 1994. (Incorporated by reference to Exhibit 10-b
to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.)
10-m Business Development Management Incentive Plan for the fiscal N/A
year ended October 31, 1994. (Incorporated by reference to
Exhibit 10-c to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1994.)
10-n Cable Management Management Incentive Plan for the fiscal year N/A
ended October 31, 1994. (Incorporated by reference to
Exhibit 10-d to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1994.)
10-o Corporate Management Incentive Plan for the fiscal year ended N/A
October 31, 1994. (Incorporated by reference to Exhibit 10-e
to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.)
53
Exhibit
Number Description Page
- ------- ----------- ----
10-p Fibermux Management Incentive Plan for the fiscal year ended N/A
October 31, 1994. (Incorporated by reference to Exhibit 10-f
to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.)
10-q International Management Incentive Plan for the fiscal year N/A
ended October 31, 1994. (Incorporated by reference to
Exhibit 10-g to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1994.)
10-r Kentrox Management Incentive Plan for the fiscal year ended N/A
October 31, 1994. (Incorporated by reference to Exhibit 10-h
to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.)
10-s Vice President of Sales and Customer Service Management N/A
Incentive Plan for the fiscal year ended October 31, 1994.
(Incorporated by reference to Exhibit 10-i to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31,
1994.)
10-t Senior Vice President Transmission Group Management Incentive N/A
Plan for the fiscal year ended October 31, 1994. (Incorporated
by reference to Exhibit 10-j to the Company's Quarterly Report
on Form 10-Q for the quarter ended July 31, 1994.)
10-u Transmission Management Incentive Plan for the fiscal year ended N/A
October 31, 1994. (Incorporated by reference to Exhibit 10-k to
the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1994.)
10-v Transmission Product and Marketing Management Management N/A
Incentive Plan for the fiscal year ended October 31, 1994.
(Incorporated by reference to Exhibit 10-l to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31,
1994.)
10-w Transmission Product and Marketing Management (International) N/A
Management Incentive Plan for the fiscal year ended October 31,
1994. (Incorporated by reference to Exhibit 10-m to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1994.)
10-x Agreement, dated as of November 1, 1991, between ADC N/A
Telecommunications, Inc. and Charles M. Denny, Jr., related to
retirement and consulting arrangements. (Incorporated by
reference to Exhibit 10-h to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1991.)
10-y Supplemental Executive Retirement Plan Agreement for William N/A
J. Cadogan, dated as of November 1, 1990, between ADC
Telecommunications, Inc. and William J. Cadogan. (Incorporated
by reference to Exhibit 10-ee to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1993).
10-z ADC Telecommunications, Inc. Change in Control Severance Pay N/A
Plan Statement and Summary Plan Description. (Incorporated by
reference to Exhibit 10-q to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1989.)
54
Exhibit
Number Description Page
- ------- ----------- ----
10-aa Compensation Plan for Directors of ADC Telecommunications, Inc., N/A
restated as of December 31, 1988. (Incorporated by reference to
Exhibit 19-b to the Company's Quarterly Report on Form 10-Q for
the quarter ended January 31, 1989.)
10-bb First Amendment of the Compensation Plan for Directors of ADC N/A
Telecommunications, Inc. restated as of December 31, 1988.
(Incorporated by reference to Exhibit 10-s to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1989.)
10-cc ADC Telecommunications, Inc. Directors' Supplemental Retirement N/A
Plan dated as of January 23, 1990. (Incorporated by reference
to Exhibit 10-m to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1990).
10-dd ADC Telecommunications, Inc. Nonemployee Director Stock Option N/A
Plan. (Incorporated by reference to Exhibit 19-b of the
Company's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1991).
10-ee ADC Telecommunications, Inc. Deferred Compensation Plan, dated N/A
as of November 1, 1978. (Incorporated by reference to
Exhibit 10-n to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1990.)
10-ff ADC Telecommunications, Inc. Excess Benefits Plan, dated as of N/A
January 1, 1985. (Incorporated by reference to Exhibit 10-o to
the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1990).
10-gg ADC Telecommunications, Inc. 401(k) Excess Plan, dated as of N/A
September 1, 1990. (Incorporated by reference to Exhibit 10-p
to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1990).
10-hh Lease, dated February 25, 1991, between American Lightwave N/A
Systems, Inc. and 999 Research Parkway, Inc. (Incorporated by
reference to Exhibit 10-t to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1991).
10-ii Lease, dated March 1, 1986, between ADC Telecommunications, Inc. N/A
and Metro International Ltd. as amended. (Incorporated by
reference to Exhibit 10-w to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1991).
10-jj Lease Agreement, dated October 26, 1990, between Lutheran N/A
Brotherhood and ADC Telecommunications, Inc. (Incorporated by
reference to Exhibit 10-w to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1990).
10-kk Lease Agreement, dated August 21, 1990, between Minnetonka N/A
Corporate Center I Limited Partnership and ADC
Telecommunications, Inc. (Incorporated by reference to
Exhibit 10-x to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1990).
55
Exhibit
Number Description Page
- ------- ----------- ----
10-ll Sublease Agreement, dated October 31, 1990, between Seagate N/A
Technology, Inc. and ADC Telecommunications, Inc. (Incorporated
by reference to Exhibit 10-y to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1990).
10-mm Renewal of Lease, dated July 9, 1990, between ADC N/A
Telecommunications, Inc. and Metro International General Partner
Canada, Inc. (Incorporated by reference to Exhibit 10-z to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1990).
10-nn Lease, dated September 30, 1993, between American Lightwave N/A
Systems, Inc. and 999 Research Parkway, Inc. (Incorporated by
reference to Exhibit 10-bb to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1993).
10-oo Lease, dated August 2, 1993, between ADC Telecommunications, N/A
Inc. and Engelsma Limited Partnership. (Incorporated by
reference to Exhibit 10-cc to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1993).
10-pp Lease, dated December 18, 1992, between Fibermux Corporation N/A
and Greenville Dallas Delaware, Inc. (Incorporated by reference
to Exhibit 10-dd to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993).
21-a Subsidiaries of the Company. xx
23-a Consent of Independent Public Accountants to incorporation by xx
reference of financial material included in this report into
Company's Registration Statement on Form S-8 (File No. 2-83584),
Registration Statement on Form S-8 (File No. 33-22654),
Registration Statement on Form S-8 (File No. 33-40356),
Registration Statement on Form S-8 (File No. 33-40357),
Registration Statement on Form S-8 (File No. 33-52635) and
Registration Statement on Form S-8 (File No. 33-52637).
24-a Powers of attorney. xx
27-a Financial Data Schedule xx
56